This is the way the money rolls
“Banks may become totally outdated and the power of managing their own money could very well be placed back into the hands of individuals,” says Dawie Roodt, the well-known economist from Efficient Wealth.
He was the guest speaker at the annual Mossel Bay Business Chamber gala evening on Friday, 25 August.
Roodt gave a rundown of the two forms of traditional money and how the new generation of digital and virtual money could change the whole landscape of doing business.
There is the government money distributed by a central authority
(such as the Reserve Bank that distributes the rand) and private money, created by private individuals or groups.
Private money is old news. A gift voucher, for instance, can be offered at various shops and even cellphone airtime can sometimes be used as money. The tickets that you buy to pay for your pancakes at a basaar are nothing other than private money.
He then focused on digital and virtual money and how the banks could be totally sidestepped in the dealings between two individuals.
“Most of us are already dealing in encrypted messages when we make use of the popular social media platform of WhatsApp. The message is protected between the two parties and this is exactly what you do when you make use of money that is not stashed away somewhere in a bank,” Roodt said.
Digital money does not really exist. It is also called electronic money as it exists somewhere on a number of computers. We use digital money when we pay with our credit cards or when we make an internet transfer between accounts. Other than with physical money, two people do not need to be in each other’s presence to exchange digital money. They can be in various places in the world.
Another characteristic of digital government money is that individuals cannot transfer money directly to one other. With digital government money, however, it is always possible to follow the “trail” of money on bank statements.
Private digital money
Private digital money is also possible. Any group can decide it wants to make its own money. Digital money can be created and the algorithms (formulas in the programming) can be written in such a way as to only allow a certain amount of money to be made. Furthermore, the computers of everybody participating in this scheme monitor and police one another.
Private money is decentralised money and it can also be transferred from one person to another, without a financial intermediary. The result of this is that financial transactions can easily be hidden, which has immense implications for tax collection, for example!
The last type of money is virtual money. It is something that is like money but is in fact pretend money. The game Monopoly’s money is an example of virtual money.
To make matters worse for politics, all of this can be encrypted. “Without getting too technical, this simply means that the technology enables these private financial transactions to be “hidden” very successfully, just as your WhatsApp messages are already encrypted.” he added.